Plus500 Limited Annual Report and Accounts 2013 About Plus500
Plus500 is a fast growing online provider of Contracts for Difference (CFD's). Plus500 has developed and operates an online trading platform for retail customers to trade CFDs internationally over more than 1,900 different underlying global financial instruments comprising equities, exchange-traded funds ("ETFs"), foreign exchange, indices and commodities. The Group enables retail customers to trade CFDs in more than 50 countries and in over 31 languages. The trading platform is accessible from multiple operating systems (Windows, smartphones (iOS and Android), tablets (iOS and Android)) and the Internet.
Plus500 Limited | Annual Report and Accounts 2013 Contents Page
OVERVIEW
3 Highlights 4 Chief Executive Officer’s Review 6 Financial review
DIRECTORS AND GOVERNANCE
11 Board of Directors 14 Directors’ Report 20 Remuneration Report 22 Corporate Governance
FINANCIALS
29 Statement of Directors’ Responsibilities 32 Independent Auditor’s Report 33-34 Consolidated balance sheet 35 Consolidated income statement 36 Consolidated statement of changes in equity 37-38 Consolidated cash flow statement 39-76 Notes financial statements
FURTHER INFORMATION
79-80 Advisers
Plus500 Limited | Annual Report and Accounts 2013 1
Plus500 | OVERVIEW Plus500 Limited | Annual Report and Accounts 2013
4
Highlights
FINANCIAL HIGHLIGHTS Revenue increased 105% to $115.1 million (2012: $56.1 million) EBITDA1 increased 190% to $67.3 million (2012: $23.2 million) $115.1m
EBITDA margin increased to 58% (2012: 41%) Revenue Net profit increased 196% to $50.6 million (2012: $17.1 million) 2012: $56.1m Earnings per share increased 176% to $0.47 (2012: $0.17)
Average Revenue Per User (ARPU) increased 38% to $1,325 (2012: $962)
Operating cash flow of $57.1 million (2012: $19.9million)
OPERATIONAL HIGHLIGHTS
Record year for revenue and profit - significantly ahead of $67.3m expectations at the time of the IPO EBITDA Successful listing on AIM in July 2013 2012: $23.2 m
o Raised $75 million via a Placing supported by institutional investors in the UK o London listing has had a material positive impact on the Group’s brand value Continued growth in active customers2 increased 47% to 85,795 (2012: 58,343)
Continued growth in new customers3 increased 53% to 56,819 (2012: 37,050)
Ongoing strengthening in Plus500’s market position
Further expansion in Europe, with the UK showing strong gain in market share
Significant increase in smartphone and tablet users accessing Plus500’s trading platform
Highest ranked smartphone and tablet app in the CFD sector at Apple’s AppStore and Android’s Google Play store
Successful launch in Australia
1 EBITDA - Earnings before interest and taxes and depreciation and amortization
2 Active Customers: Customers who made at least one real money trade during the period.
3 New Customers: Customers depositing for the first time ever during the period.
Plus500 Limited | Annual Report and Accounts 2013 3 Chief Executive Officer’s Review
Overview Plus500 has made good progress this year as we continued our strategy which helped deliver strong growth coupled with a high dividend yield. We have increased our market share in most jurisdictions in which we operate by attracting a large number of new customers, while also retaining the majority of our existing active customers who continually use our proprietary, easy to use and robust CFD trading platform. Plus500 successfully completed an AIM listing on the London Stock Exchange and became a public company on 24 July 2013. This process has allowed the company to increase its profile and brand awareness amongst both its existing and new customers. The large growth in customers directly contributed to significant growth in revenues, EBITDA and all other significant KPIs. These include: • Number of Active Customers4: 85,795 (2012: 58,343) • Number of New Customers5: 56,819 (2012: 37,050) • Average Revenue per User (ARPU): $1,325 (2012: $962) • Average User Acquisition Cost (AUAC): $632 (2012: $628)
Our CFD product portfolio has also increased in 2013 by over 600 new instruments, bringing our total to more than 1,900 instruments, allowing our customers to access a wide breadth of investment alternatives. Against a challenging economic climate, our performance is a reflection of the efforts and commitment of all our employees across the Group. I would like to thank them all for the hard work and I am confident of the future ahead, together.
Growth and Development Plus500 offers an international CFD trading platform for retail customers only. The Company has developed its own in-house proprietary product which is now available for PCs, web browsers, smartphones and tablets (iOS and Android). The software has evolved to allow customers to trade CFDs in an easy and cost effective manner spread across CFDs on single stocks from the world markets, ETFs, indices, commodities and foreign exchange pairs. The Company has also developed its proprietary online marketing technology, dubbed the “Marketing Machine” internally, which allows Plus500 to effectively bid on over 1 million key words in search engines (such as Google, Bing, Yahoo!) and acquire new customers in a cost effective manner. With continual optimisation of the marketing return on investment, we see
4 Active Customers: Customers who made at least one real money trade during the period.
5 New Customers: Customers depositing for the first time ever during the period.
Plus500 Limited | Annual Report and Accounts 2013 4 it as a strong driver for taking further market share in the future. We have also increased our social media exposure and our affiliate program. Although the Group focuses on online marketing, we have also stepped up our offline efforts with a live-action ad which aired mostly on pan-European channels such as Eurosport during Grand Slam tennis tournaments. The Group has maintained its lean cost structure which in turn allows most expenses to be concentrated on our marketing efforts and allow for an attractive price model to our customers. Plus500 has also received a license by ASIC to operate in Australia where we began offering our retail online CFD platform in January 2013. We intend to focus on increasing our market share in Australia in the future as we believe this to be a key growth opportunity. With the successful IPO behind us, the Group saw improvements in acquiring new customers, better churn and improved ROI across all our Key Performance Indicators. (‘KPI’s’) We expect this positive trend in growth to continue.
Markets Plus500 focuses its efforts primarily in its existing markets which comprise of over 50 key countries. Our software is localised in 31 languages providing customers a native platform in their spoken language. The Group’s current core market is Europe where over 90% of its revenues are achieved, with the UK being its largest jurisdiction with 15% of its total revenues in 2013. Due to our low cost structure and highly measurable online marketing efforts, the Group can attract customers from countries with a lower GDP as well and maintain its high profitability ratios.
Current Trading and Outlook Plus500 had an exceptional 2013 with results significantly exceeding initial expectations. This strong performance further underpins the Board’s commitment to pursuing a dividend policy of paying out 50% of net profit and additional special dividends where the capital needs of the business allow. The new financial year has started particularly robustly and we have seen customer trading run rates and all KPIs at levels ahead of our internal forecasts. We will continue to invest in building our presence in current core markets, including the UK, EU and Australia, and to explore opportunities for expansion into new geographies, which remains an important strategic goal of the Group. With the progress made in 2013, and in view of the strong start to 2014, the Board remains confident of delivering further considerable growth in 2014 and beyond.
Gal Haber Chief Executive Officer 10 March 2014
Plus500 Limited | Annual Report and Accounts 2013 5 Financial Review
$115.1m Revenue 2012: $56.1m
$67.3m EBITDA 2012: $23.2m
$50.6m
Net Profit 2012: $17.1m
$0.47
EPS 2012: $0.17
Plus500 Limited | Annual Report and Accounts 2013 6 Financial Review An overview of the Group’s financial performance is provided in the Chief Executive’s Review.
The following section provides a more detailed analysis of the Group’s financial performance for the year ended 31 December 2013, including a discussion of the KPIs used to monitor and control our business.
The Group generates its revenues principally from the dealing spreads on the Trading Platform. In addition, the Group generates revenues from overnight premiums, effectively a financing charge, on certain positions held by customers overnight and gains (offset by losses) on customers’ trading positions. The Group does not charge customers a commission on trades. 2013 was a record year for Plus500. In 2013, the Company achieved an EBITDA of $67.3 million and revenues of $115.1 million up 190% and 105%, respectively, from 2012.
Plus500's total assets grew from $25.3 million in 2012 to $90.1 million in 2013, an increase of 257%, with cash balances increasing to $84.1 million (2012: $22.5 million) and equity of $68.0 million (2012: $11.9 million), representing approximately 75% of the balance sheet.
Cash generated from operations was $66.9 million (2012:$23 million), an increase of 191%. Yearly
ARPU increased by 38% year-on-year in 2013 driven by several factors including: i) increased brand awareness attracting higher value customers and increasing average deposit sizes and ii) addition of new financial instruments, such as Bitcoin and Litecoin, and several high profile IPOs.
Despite significant investment in marketing of $35.9 million (2012: $23.2 million) in the year, the Company still achieved an EBITDA margin of 58% (2012: 41%) due to the automation and improved knowledge of the Group’s proprietary Marketing Machine. The stability of the Group has been supported by maintaining a flexible cost structure. The high degree of operating leverage within the business, driven by the efficiency and automation of the Trading Platform, enables the Group to generate a higher average revenue per employee whilst maintaining a relatively and a lower average cost per employee, compared with its peers.
The table below shows the consolidated audited results of the Group for the three financial years ended 31 December 2013.
2011 ($’000) 2012 ($’000) 2013 ($’000)
Revenue 50,028 56,127 115,088 EBITDA 23,743 23,168 67,285 Profit before Tax 23,051 23,073 67,165 Net Assets 9,422 11,947 68,014
Plus500 Limited | Annual Report and Accounts 2013 7 The Board has declared a final dividend of $0.1504 per share which will be paid on 1 May 2014 to shareholders on the register at close of business on 14 March 2014; the shares will be marked ex-dividend on 12 March 2014. In addition, the Group declared $8 million in dividends to shareholders during the first half of the year. This represents a total dividend pay-out of $25.3 million, or 50% of net profit for the 12 months ended 31 December 2013, in line with the Group's stated policy to pay no less than 50% of retained profits in each financial year out as dividends. In addition, the Board has declared a special dividend of $0.1369 per share which will be paid on 1 May 2014 to shareholders who were on the register by 14 March 2014; the shares were marked ex-dividend on 12 March 2014.
Plus500 Limited | Annual Report and Accounts 2013 8
Plus500 Limited | Annual Report and Accounts 2013 9
Plus500 Limited | Annual Report and Accounts 2013 Plus500 | DIRECTORS AND GOVERNANCE 12
Board of Directors
Alastair Gordon, Non-Executive Director and Chairman, 63 Alastair Gordon is a non-executive Director and chairman of the Group. Mr. Gordon has over 15 years’ experience in global information management, software and e-commerce.
Mr. Gordon spent 12 years at SDL plc, a provider of global information management and software services, where he served as chief financial officer from 1998 to 2008 and executive director from 1998 to 2010. He played a leading role in the company’s initial public offering and helped to grow the business, both organically and by acquisition, to become a FTSE350 company. Mr. Gordon retired as the chief financial officer in 2008 but remained on the Board for a further two years as an executive director.
Prior to working at SDL plc, Mr. Gordon spent 10 ten years at Berisford International plc, where he held a number of divisional and group financial roles, including chief financial officer of the company’s US operations.
Prior to working at Berisford International plc, Mr. Gordon spent 13 years at Arthur Andersen LLP, where he was a senior audit manager specialising in small and medium sized businesses and venture capital. Mr. Gordon served as senior independent non-executive director of Active Risk Group plc (formerly Strategic Thought Group plc), an enterprise risk management technology company, from 2008 to 2013. He also served as a non-executive director of Alterian plc, a marketing analysis software business, from 2010 until 2012. Mr. Gordon is a Qualified Chartered Accountant and is a member of the ICAEW.
Charles Fairbairn, Senior Non-Executive Director and Outside Director, 51 Charles Fairbairn is a non-executive Director, the senior independent director and chairman of the Audit Committee. Mr. Fairbairn has held similar positions for a number of AIM companies over the past 14 years including Research Now Ltd, the online research company of which he was a founder investor, Statpro Group plc, providing analytics for asset managers, and Brightview plc, an internet service provider.
Mr. Fairbairn graduated from Durham University with a BA (Hons) in Economics in 1983 and then qualified as a Chartered Accountant with Deloitte Haskins & Sells in London in 1986. Having spent seven years at Deloitte Haskins & Sells, he joined Pearson Plc in 1990 as group accountant, group chief accountant and latterly finance director of Pearson New Entertainment, a start-up division. Over the following 15 years, since leaving Pearson New Entertainment in 1998, he has held a number of positions as finance director, executive and non-executive director of a portfolio of companies, helping to develop and scale growth companies from start-ups into global companies. Mr. Fairbairn is an active investor in growth companies and reviews new business and turnaround opportunities, exposing him to a multitude of sectors and business models. He also holds an investment management certificate.
Plus500 Limited | Annual Report and Accounts 2013 11 Henry Birch, Non-Executive Director, 45 Henry Birch is a non-executive Director of the Company. Mr. Birch has nearly 20 years of experience in the online betting and gaming space and in online and broadcast media.
Most recently he was the chief executive officer of William Hill Online, the joint venture between William Hill plc and Playtech plc, which managed William Hill's online business. The business established itself as the UK market leader in online gambling and a significant global player, offering its products in 22 languages and with multiple offices including a marketing and technology hub in Israel. Prior to working at William Hill Online, Mr. Birch was the chief executive officer of Leisure & Gaming plc, an AIM-listed company that owned and operated a number of subsidiaries in the online gambling space. Prior to working at Leisure & Gaming plc, Mr. Birch was the chief operating officer of Bettingcorp Ltd, an Israeli company focussed on the development and operation of online and interactive TV gaming platforms, which was sold to Liberty Media subsidiary Open TV in 2003.
Prior to working in the gambling industry, he was the director of business development for Riffage Inc, an AOL and Bertelsmann backed online music company based in Palo Alto, California, and spent four years working for Time Warner as their public and European affairs manager. Mr. Birch started his career working in the House of Commons for (Lord) David Steel.
Mr. Birch graduated from the University of Edinburgh with an MA in Politics and subsequently Stanford Graduate School of Business, California, with an MBA.
Daniel King, Non-Executive Director and Outside Director, 47 Daniel King is a non-executive Director and chairman of the Remuneration Committee and Nomination Committee. Mr. King has over 18 years’ experience in e-commerce technologies, data and analytics, digital and online media and has extensive knowledge in developing and scaling high-growth companies.
Mr. King sits on the Board of a number of companies in the e-commerce and online space. He is currently working for UK Trade & Investment as Head of High Growth & Emerging Markets, working with companies and individual investors looking to set up their businesses or investment in the UK. Mr King was previously managing partner of Blue Leaf Capital, a private boutique venture capital and advisory services company based in London. Prior to this Mr. King was managing director of Compete, Inc, a Kantar Media/WPP company where he oversaw the launch of the UK and France businesses. Prior to that he was chief commercial officer for MySupermarket.co.uk where he oversaw all operations for the consumer website. Prior to joining MySupermarket, Mr. King was managing director of Experian Hitwise, overseeing the company’s European operations and was a key member of staff that led to the eventual acquisition of Hitwise by Experian in June 2007.
Daniel is a mentor and judge on London Business School’s MBA Entrepreneurship Programme, and is also an advisor and mentor with technology incubator Seedcamp, (www.seedcamp.com) a programme aimed at bringing together next generation start-ups with entrepreneurs, business executives and venture capitalists.
Plus500 Limited | Annual Report and Accounts 2013 12 Gal Haber, Chief Executive Officer and Director, 39 Gal Haber has nearly 15 years’ experience in software programming and business development. One of the Founders, he currently holds the position of chief executive officer and is responsible for the day-to-day running of operations. In particular, he has led the design of the user-friendly Trading Platform, which represents one of the key competitive advantages for the business. Mr. Haber holds a B.Sc. in Computer Science from the Technion, Israel. Before founding Plus500, Mr. Haber served as chief operating officer of InterLogic Ltd, a ‘skilled games’ programme provider for the internet, and mobile devices, which he co-founded in 2004.
Alon Gonen, Managing Director and Director, 37 Alon Gonen is a Founder and has played an integral part in the development of the Group to date. He is responsible for financial risk limitation and the strategic development of the Group. Mr. Gonen holds a B.Sc. in Electrical Engineering from the Technion, Israel, and has been involved in commercial software development for over 14 years. Prior to founding Plus500, Mr. Gonen co-founded InterLogic, where he held the position of the chief executive officer and was responsible for the development of mass market ‘skilled games’ across the internet, and mobile platforms.
Inbal Marom, Group Chief Financial Officer and Director, 33 Inbal Marom is currently chief financial officer of Plus500 having joined the Group in 2009. Ms. Marom's responsibilities cover a broad range of business functions including managing all finance departments, regulation compliance, transaction reporting, fulfilling the corporation obligation with regard to the Anti-Money Laundering Authority in Israel, all financial reporting in Israel and liaison with key external advisers.
Prior to joining Plus500, Ms. Marom worked at Carestream, a medical systems manufacturer, as an accountant assistant. Prior to working at Carestream, Ms. Marom was a senior auditor at Deloitte Brightman Almagor, handling a variety of client accounts for quoted companies listed in USA, Israel and Europe. Ms. Marom holds a B.A. in Economics & Accounting from Haifa University and is a certified accountant in Israel.
Plus500 Limited | Annual Report and Accounts 2013 13 Directors’ Report
Plus500 Ltd was incorporated and registered in the State of Israel with registered number 514142140.
Activities Plus500 has developed and operates an online trading platform for retail customers to trade CFDs internationally over more than 1,900 different underlying global financial instruments comprising equities, ETFs, foreign exchange, indices and commodities. The Group enables retail customers to trade CFDs in more than 50 countries. The Trading Platform is accessible from multiple operating systems (PCs, web browsers, iOS (iPhone/iPad) and Android (tablets and smartphones)). The Directors believe that the success of the Group to date has been primarily due to the self- developed, proprietary technology it has developed and continues to develop to support the Trading Platform. The Trading Platform has been designed to be as intuitive and easy to use as possible. The Trading Platform has been localised into 31 languages. The Directors believe that this emphasis on technology, together with the Group’s targeted online marketing strategy, has helped to differentiate the Group from its competitors. The Group generates its revenues principally from the dealing spreads on the Trading Platform. Additionally, the Group generates revenues from overnight premiums, effectively a financing charge, on certain positions held by customers overnight and gains (offset by losses) on customers’ trading positions. The Group does not charge customers a commission on trades. The Group currently conducts operations in the European Economic Area (EEA), Gibraltar, Australia and certain other jurisdictions across Asia, the Middle East and elsewhere. The Group has two subsidiaries which have been granted licences by regulators. In June 2010, the Company's UK subsidiary, Plus500UK, received authorisation from the Financial Conduct Authority (FCA) which regulates its operations in the United Kingdom. Plus500UK also operates in other EEA countries and Gibraltar through a regulatory passporting mechanism. In October 2012, the Company's Australian subsidiary, Plus500AU, received the Australian Securities and Investments Commission (ASIC) licence which enables it to conduct a financial services business in Australia. Failure to operate in accordance with required authorisations, approvals, licences, permits and/or the regulatory framework as a whole in any jurisdiction gives rise to significant risks.
Plus500 Limited | Annual Report and Accounts 2013 14 Business Review For the operating and financial review of the business during the year please refer to the Chief Executive Officer’s Review on pages 4 to 5 and the Financial Review on page 6 to 8 included within the Annual Report. For future developments please refer to the outlook section on the Chief Executive Officer’s review on page 5.
Financial The 2013 financial year was a record year for Plus500. Revenues totalled $115.1 million (2012: $56.1 million), representing 105% growth compared to 2012. Particularly pleasing was the growing number of active users and growth in ARPU, up 38% to $1,325 (2012: $962). EBITDA in 2013 was $67.3 million (2012: $23.2 million), an increase of 190%, with EBITDA margins increasing from 41% in 2012 to 58% in 2013. Results have benefited from the scalability of the Group's business model with the combination of revenue growth and further improvements in the operational cost structure driving the excellent performance. 2013 Net Profit After Tax was $50.6 million (2012: $17.1 million), an increase of 196%.
Dividend Policy The Group’s stated dividend policy is to pay no less than 50% of retained profits in each financial year out as dividends. Therefore, the Board has declared a final dividend of $0.1504 per share which will be paid on 1 May 2014 to shareholders on the register at close of business on 14 March 2014; the shares will be marked ex-dividend on 12 March 2014. The Group also declared $8.0 million in dividends to shareholders during the first half of the year. This represents a total dividend pay-out of $25.3 million, or 50% of net profit for the 12 months ended 31 December 2013. In addition, the Board has declared a special dividend of $0.1369 per share which will be paid on 1 May 2014 to shareholders on the register at close of business on 14 March 2014; the shares will be marked ex-dividend on 12 March 2014.
Key Performance Indicators (KPIs) KPIs, which are set at Group level, have been devised to allow the Board and shareholders to monitor the Group as a whole, as well as the operating businesses within the Group. The Group has financial KPIs that it monitors on a regular basis at Board level and where relevant at divisional management meetings as follows: • Number of Active Customers6: 85,795 (2012: 58,343) • Number of New Customers7: 56,819 (2012: 37,050) • Average Revenue per User (ARPU): $1,325 (2012: $962) • Average User Acquisition Cost (AUAC): $632 (2012: $628)
6 Active Customers: Customers who made at least one real money trade during the period.
7 New Customers: Customers depositing for the first time ever during the period.
Plus500 Limited | Annual Report and Accounts 2013 15 Research and Development The Group’s trading platform, which acts as a key differentiator and competitive advantage against its peers, has been specifically developed to be as intuitive and user friendly as possible providing customers with real-time prices, allowing users to monitor their open positions and trading activity continuously, execution facilities and a multitude of order types. Customers are able to trade and access all of their account information online through a variety of different channels, which results in increased traffic to the trading platform.
As a result of Plus500’s self-developed proprietary technology, the Group pays no external licence fees for its core trading platform technology. This allows the Group to operate without limiting the amount of time that a customer can use a demo account or placing high thresholds on the minimum amount with which a customer can open a real-money trade. The trading platform also provides, free of charge, real-time price and data analysis features to customers, which provides the Group with a significant competitive advantage. The development of the trading platform continues to evolve in order to meet the growing demands of Plus500's active customer base. For example, following the launch of iOS 7, the Group immediately released a new interface for users. Plus500 is constantly updating and introducing new financial instruments to its supported portfolio to meet customer demand across the geographies where it operates.
The industry-wide trend for trading CFDs on smartphones and tablets continued to gather pace in 2013. Plus500’s mobile platforms for both smartphones and tablets now account for about 50% of revenues and customers. The Plus500 mobile app is consistently the highest ranked in its sector with an average rating of 4.5 out of 5 on both Apple’s AppStore and Android’s Google Play store. It has also received more reviews than competitors. The Group’s web trading platform has been updated with the removal of Flash components for usage of HTML5 and Java Script exclusively. This enables it to run optimally on all mobile phones and tablets. In addition, it is in the process of receiving user interface updates for better accessibility. The Group is currently also considering offering native apps for additional platforms such as Windows Phones.
Supplier Policy of the Company Group creditors relate mainly to costs associated with marketing, financial information and payment processing services. Due to the nature of these creditors, the Company does not have a specific supplier payment policy. Average creditors days for the year ended 31 December 2013 is 30 days (2012: 30 days).
Employees Plus500 is committed to the creation of a work environment in which fairness, trust and individual responsibility are valued. We believe that talented and dedicated employees are our most valuable asset and that everyone should be given an equal opportunity to succeed. The Group is committed to equal opportunity in employment and to creating, managing and valuing diversity in its workforce.
Plus500 Limited | Annual Report and Accounts 2013 16 The Group has an equal opportunities policy with respect to hiring, promotion, compensation, training and assignment of responsibilities, termination, or any other aspect of the employment relationship on the basis of race, colour, national origin, religion, sex, age, sexual orientation, marital status, physical or mental disability.
Environment We are continuously striving to increase sustainability efforts and have developed a thorough company-wide action plan targeted at conservation of resources. Our efforts include energy- saving technology integration, responsible product design, resource conservation, recycling with responsible end of life electronics management and green information technology practices.
Social At Plus500, we are committed to operating responsibly in all aspects of our business, including enriching the communities where we operate and creating an inclusive, safe and healthy workplace. We know that mobile technology is a great way to bring people together and build communities that is why at the core of our Corporate and Social Responsibility (“CSR”) efforts we use the same expertise, technology and partnerships we use in working with our customers. We believe that CSR is both our responsibility and an essential part of good management. As we navigate through our growth transition, we remain committed to integrating CSR initiatives into our business, not only to enrich and contribute to the lives of the communities in which we work and live, but also to create tangible value for our employees, customers, and shareholders.
Principal Risks and Uncertainties Management and control of risks within the Group is embedded within day to day operating procedures. The Group has developed a comprehensive risk mitigation plan to ensure minimum exposure and secure solutions. These procedures comprise a range of measures including corporate policies, operating rules, systematic reporting, external audits, self-assessment and continuous monitoring by the Board and the executive management team. The Group operates globally in varied markets and the principal risks and uncertainties have been reviewed by the Board together with agreed mitigating actions. The most significant risks and uncertainties and mitigation actions are outlined on pages 41 to 56 of our Admission Document, dated 24 July 2013, a copy of which is available on the Group’s website at http://www.plus500.co.il/Investors/AIM26.aspx.
Plus500 Limited | Annual Report and Accounts 2013 17 Capital Management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. There were no changes to the Group’s approach to capital management during the year. Share Capital At the close of business on 10 March 2014, the Company had 114,888,377 ordinary shares in issue, of which none were held in treasury. The Company does not currently have any share schemes.
Summary The last 12 months have seen Plus500 make strong progress in further market penetration in all countries where it operates. Our pace of new customer acquisition has accelerated during the year. We believe we have in place the product, back office, online marketing tools and employees to allow us to grow organically in all current jurisdictions. We are delighted to be reporting such a strong performance in our first annual report as a public company and believe we are well positioned to make further progress towards our aim of being one of the market leaders in the global retail online CFD sector.
Substantial Shareholdings As of 10 March 2014, based on information reported to the Company by shareholder, the Company had the following shareholders with direct or indirect interest of 3% or more of the issued and outstanding share capital of the Company:
Significant Shareholders % O/S
1 Sparta24 Ltd. 16.66% 2 Odey Asset Management LLP 6.15% 3 Wavesoft Ltd. 5.9% 4 Smarty Ltd. 5.9% 5 Hargreave Hale, stockbrokers 5.06% 6 Investec Asset Management Limited 4.35% 7 J.P. Morgan 4.04% 8 Newton Investment Management 3.93% 9 Omer Elazari 3.59% 10 Shlomi Weizmann 3.59%
Plus500 Limited | Annual Report and Accounts 2013 18 Annual General Meeting The Annual General Meeting will be held on 8 May 2014 at the office of Buchanan Communications, 107 Cheapside, London EC2V 6DN. Details of all resolutions to be proposed at the Annual General Meeting are included in the Notice of Direction.
Going Concern The Directors, after considering the risks and uncertainties set out on pages 52 and 57 and after reviewing the Group’s operating budgets, investment plans and financing arrangements, consider that the Group has sufficient resources at their disposal to continue their operations for the foreseeable future. Accordingly, the financial statements have been prepared on a going concern basis.
Events after the reporting period For significant events after the reporting period please refer to Note 16 on page 76.
Directors’ Statement as to Disclosure of Information to Auditors Having made enquiries of fellow Directors and of the Company’s auditors, each Director confirms that to the best of each Director’s knowledge and belief, there is no information relevant to the preparation of their report of which the Company’s auditors are unaware. The Directors of the Company have taken all the steps that they might reasonably be expected to have taken as directors in order to make themselves aware of any information needed by the Company’s auditor in connection with preparing their report and to establish that the auditors are aware of that information.
Auditors There is no limitation of liability in the terms of appointment of the Auditor. The Company’s Auditors for the next year will be appointed in the Annual General Meeting that will take place on 8 May 2014.
Approved by the Board and signed on its behalf by
Inbal Marom, Group Chief Financial Officer 10 March 2014
Plus500 Limited | Annual Report and Accounts 2013 19 Remuneration Report
Directors’ Remuneration The Board recognises that Directors’ remuneration is of legitimate interest to the shareholders. The Group operates within a competitive environment, performance depends on the individual contributions of the Directors and employees and it believes in rewarding vision and innovation. As an Israeli company, listed on the AIM market of the London Stock Exchange Plus500 is not required to (and does not) comply with the requirements of Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008.
Policy on Directors’ Remuneration The policy of the Board is to provide executive remuneration packages designed to attract, motivate and retain Directors of the calibre necessary to maintain the Group’s position. It aims to provide sufficient levels of remuneration to do this, but to avoid paying more than is necessary. The remuneration will also reflect the Director’s responsibilities.
Remuneration Committee The remuneration of the Directors in 2013 was as follows (all amounts in GBP): Salaries
1 Alastair Gordon* 27,500 2 Charles Fairbairn* 21,685 3 Henry Birch* 21,277 4 Daniel King* 15,000 5 Alon Gonen 101,695 6 Gal Haber 101,695 7 Inbal Marom 83,898
* The amounts reflect partial year payments since the non-executive director’s appointment in July 2013.
The Remuneration Committee is formally required to meet not less than twice a year and at such other times as necessary. The Remuneration Committee has responsibility for determining, within the agreed terms of reference, the Group's policy on the remuneration packages of the Company's chief executive, the chairman, the executive and non-executive Directors, the Company secretary and other senior executives. The Remuneration Committee also has responsibility for: (i) recommending to the Board a compensation policy for Directors and executives and monitoring its implementation; (ii) approving and recommending to the
Plus500 Limited | Annual Report and Accounts 2013 20 Board and the Company's shareholders, the total individual remuneration package of the chairman, each executive and non-executive director and the chief executive officer (including bonuses, incentive payments and share options or other share awards); and (iii) approving and recommending to the Board the total individual remuneration package of the Company secretary and all other senior executives (including bonuses, incentive payments and share options or other share awards), in each case within the terms of the Group's policy and in consultation with the chairman of the Board and/or the chief executive officer. No Director or manager may be involved in any discussions as to their own remuneration.
Plus500 Limited | Annual Report and Accounts 2013 21 Corporate Governance
The Board is responsible to shareholders for effective direction and control of the Group and this report describes the framework for corporate governance and internal control that the directors have established to enable them to carry out this responsibility. As an AIM listed company, the Company is not required to comply with the provisions of the UK Corporate Governance Code (the “Code”) and this is not a statement of compliance as required by the Code. However, the Directors recognise the importance of sound corporate governance and, accordingly, comply with the Code, to the extent they believe appropriate for a company of its nature and size. The Board also follow, as far as practicable, the recommendations in the Corporate Governance Code for Small and Mid-size Quoted Companies published by the QCA in May 2013 (the “QCA Guidelines”), which have become a widely recognised benchmark for corporate governance of small and mid-size quoted companies, particularly AIM companies. As an Israeli company, the Company also complies with the corporate governance provisions of Israel’s Companies Law, 5759-1999 (the “Companies Law”).
The Board and Committees
Board The Board is responsible for the overall strategy and financial performance of the Group and has a formal schedule of matters reserved for its approval. Each Board meeting is preceded by a clear agenda and any relevant information is provided to directors in advance of the meeting. The Company has established properly constituted audit, remuneration and nomination Committees of the Board (in accordance with the Companies Law) with formally delegated duties and responsibilities. Terms of reference for each of these committees can be found on the Company’s website (www.plus500.com).
On 10 March 2014 the Board comprised of three executive directors, Gal Haber, Alon Gonen and Inbal Esther Marom, and four non-executive directors, Alastair Gordon (Chairman), Charles Fairbairn (Senior Non-Executive Director), Henry Birch and Daniel King.
An evaluation of Board performance is assessed on an annual basis via questionnaire and detailed board discussion.
The Board has met on six occasions since the Company’s admission to the AIM in July 2013 to discuss operational business. The meetings were held on 22 August 2013, 16 October 2013, 11 December 2013, 14 January 2014, 18 February 2014, and 10 March 2014.
All directors attended these meetings.
Plus500 Limited | Annual Report and Accounts 2013 22 The Board also holds regular telephone calls to update the members on operational and other business. An agreed procedure exists for directors in the furtherance of their duties to take independent professional advice. Newly appointed directors are to be made aware of their responsibilities through the company secretary. The Company provides training to directors where required. No individual or group of directors dominates the Board’s decision making. Collectively, the nonexecutive directors bring a valuable range of expertise in assisting the Group to achieve its strategic aims. Since the Company’s admission to the AIM in July 2013, the roles of chairman and chief executive officer have been separate. The chairman is responsible for the effective running of the Board and the chief executive is ultimately responsible for all operational matters and the financial performance of the Group.
In accordance with the Companies Law, the Board must always have at least two Outside Directors who meet certain statutory requirements of independence. The Company’s Outside Directors are currently Charles Fairbairn and Daniel King. The term of office of an Outside Director is three years, which can be extended for two additional three year terms. Under the Companies Law, Outside Directors are elected by shareholders by a special majority and may be removed from office only in limited cases. Any committee of the Board must include at least one Outside Director and the Audit Committee and Remuneration Committee must each include all of the Outside Directors (including one Outside Director serving as the chair of the Audit Committee and Remuneration Committee), and a majority of the members of each of the Audit Committee and Remuneration Committee must comply with the director independence requirements prescribed by the Companies Law.
Remuneration Committee The Remuneration Committee has responsibility for determining, within the agreed terms of reference, the Group’s policy on the remuneration packages of the Company’s chief executive, the chairman, the executive and non-executive directors, the Company secretary and other senior executives. The Remuneration Committee also has responsibility for: (i) recommending to the Board a compensation policy for directors and executives and monitoring its implementation; (ii) approving and recommending to the Board and the Company’s shareholders, the total individual remuneration package of the chairman, each executive and non-executive director and the chief executive officer (including bonuses, incentive payments and share options or other share awards); and (iii) approving and recommending to the Board the total individual remuneration package of the Company secretary and all other senior executives (including bonuses, incentive payments and share options or other share awards), in each case within the terms of the Group’s policy and in consultation with the chairman of the Board and/or the chief executive officer. No Director or manager may be involved in any discussions as to their own remuneration. The Remuneration Committee comprises Daniel King, Charles Fairbairn and Henry Birch and is chaired by Daniel King and operates under written terms of reference. The remuneration report on page 20 contains a detailed description of the Group’s remuneration policy. The committee met on two occasions since the Company’s admission to the AIM in July 2013. The meeting were held on 14 January 2014, and 10 March 2014. All of the relevant committee members attended this meeting.
Plus500 Limited | Annual Report and Accounts 2013 23 Nomination Committee The nomination Committee has responsibility for reviewing the structure, size and composition (including the skills, knowledge and experience) of the Board, and giving full consideration to succession planning. It also has responsibility for recommending new appointments to the Board.
The Nomination Committee comprises Daniel King, Alon Gonen and Charles Fairbairn and is chaired by Daniel King. The committee met on one occasion on 10 March 2014 since the Company’s admission to the AIM in July 2013, in relation to the re-election of Alastair Gordon, Gal Haber, Alon Gonen, Inbal Esther Marom and Henry Birch at the forthcoming Company’s Annual General Meeting. In accordance with the Companies Law, the term of office of Charles Fairbairn and Daniel King, the Company’s Outside Directors, continues until July 2016, and therefore they are not standing for re-election at the forthcoming Annual General Meeting and all committee members were present. Alon Gonen did not participate in the meeting of the Nomination Committee concerning the proposal to re-nominate him for election to the Board. The Nomination Committee’s members believe that the directors put forward for re-election at the forthcoming Annual General Meeting continue to be effective and demonstrate commitment to their role. The Nomination Committee and Board unanimously recommend the re-election of all Board members offering themselves for re-election.
Audit Committee The Audit Committee has responsibility for ensuring that the financial performance of the Group is properly reported on and reviewed, and its role includes monitoring the integrity of the financial statements of the Group (including annual and interim accounts and results announcements), reviewing internal control and risk management systems, reviewing any changes to accounting policies, reviewing and monitoring the extent of the non-audit services undertaken by external auditors and advising on the appointment of external auditors. In addition, under the Companies Law, the Audit Committee is required to monitor deficiencies in the administration of the Company, including by consulting with the internal auditor and independent accountants, to review, classify and approve related party transactions and extraordinary transactions, to review the internal auditor’s audit plan and to establish and monitor whistle-blower procedures.
The Audit Committee comprises Charles Fairbairn, Henry Birch and Daniel King, and is chaired by Charles Fairbairn. The committee operates under written terms of reference and meets at least twice a year with the Company’s external auditors, and with the executive directors present by invitation only. The committee meets with the external auditors without the executive directors present as it considers appropriate. The committee met on three occasions since the Company’s admission to the AIM in July 2013. The meetings were held on 21 August 2013, 17 February 2014 and 10 March 2014. All members were in attendance on each occasion.
Plus500 Limited | Annual Report and Accounts 2013 24 Conflicts of Interest The Company has procedures for the disclosure and review of any conflicts, or potential conflicts, of interest in compliance with the Companies Law, which the directors may have and for the authorisation of such conflict matters by the Board.
Under the Companies Law, any transaction of the Company with a director or any transaction of the Company in which a director has a personal interest requires the approval of the Board. The transaction must not be approved if it is adverse to the Company’s interest. If the transaction is an extraordinary transaction (i.e. a transaction that is not in the ordinary course of business, that is not on market terms or that is likely to have a material impact on a company’s profitability, assets or liabilities), then Audit Committee approval is required in addition to Board approval. If the transaction concerns exculpation, indemnification, insurance or compensation of the director, then the approvals of the Remuneration Committee, the Board and the shareholders by way of ordinary resolution are required (in that order). A director who has a personal interest in a matter that is considered at a meeting of the Board, the Audit Committee or the Remuneration Committee may not attend that meeting or vote on that matter, unless a majority of the Board, the Audit Committee or the Remuneration Committee, as applicable, has a personal interest in the matter. If a majority of the Board, the Audit Committee or the Remuneration Committee, as applicable, has a personal interest in the transaction, the shareholder approval, by way of ordinary resolution, is also required.
The authorisation of a conflict matter, and the terms of authorisation, may be reviewed at any time by the Board. The Board considers that these procedures are operating effectively. There have been no matters arising requiring assessment by the board as a potential conflict during the year.
Relationship with Shareholders The Company encourages the participation of both institutional and private investors. The Chief Executive Officer and VP Business Development meet regularly with institutional investors, usually in regard to the issuance of half and full year results. Communication with private individuals is maintained through the Annual General Meeting and the Company’s annual and interim reports. The chairmen of the Company’s audit, remuneration and nomination Committees are made available to answer questions at the Company’s Annual General Meetings. In addition, further details on the strategy and performance of the Company can be found at its website (www.plus500.com), which includes copies of the Company’s press releases. Regular updates are provided to the Board on meetings with shareholders and analysts, and broker’s opinions are made available to the Board. Non-executive directors are available to meet major shareholders, if required. Investors are encouraged to contact the Company’s Investor Relations at [email protected].
Plus500 Limited | Annual Report and Accounts 2013 25 Internal Controls The Board maintains full control and direction over appropriate strategic, financial, organizational and compliance issues. The Group's organisational structure has clearly defined lines of authority, responsibility and accountability, which is reviewed regularly. The annual budget and forecasts are reviewed by the Board prior to approval being given. This includes the identification and assessment of the business risks inherent in the Group and the online financial trading industry as a whole along with associated financial and regulatory risks.
The Board has overall responsibility for the Group’s systems of internal control and for monitoring their effectiveness. Although no system of internal control can provide absolute assurance against material misstatement or loss, the Group’s systems are designed to provide the directors with reasonable assurance that issues are identified on a timely basis and dealt with appropriately. The Group’s key internal financial control procedures include:
a review by the Board of actual results compared with budget and forecasts; reviews by the Board of year end forecasts; the establishment of procedures for acquisitions, capital expenditure and expenditure incurred in the ordinary course of business; the appraisal and approval of proposed acquisitions - by the Board; the detailed budgeting and monitoring of costs incurred on the development of new products; the reporting to, and review by, the Board of changes in legislation, regulatory requirements and practices within the sector and accounting and regulatory and legal developments pertinent to the Company; and the appointing of experienced and suitably qualified staff to take responsibility for key business functions to ensure maintenance of high standards of performance.
The external auditors are engaged to express an opinion on the financial statements. They discuss with management the reporting of operational results and the financial condition of the Group, to the extent necessary to express their audit opinion.
In accordance with Companies Law, the Board must appoint an internal auditor nominated following the recommendation of the Audit Committee. The primary role of the internal auditor is to examine whether a company’s actions comply with the law and proper business procedure. The internal auditor may be an employee of the Company but may not be an interested party or office holder, or a relative of any interested party or office holder, and may not be a member of the Company’s independent accounting firm or its representative. The Company’s internal auditor is Barzilay & Co.
Audit and Auditor Independence An additional responsibility of the Audit Committee is to keep under review the scope and cost effectiveness of the external audit. This includes recommending to the Board the appointment of the external auditors and for reviewing the scope of the audit, approving the audit fee and, on an annual basis, the committee being satisfied that the auditors are independent.
Plus500 Limited | Annual Report and Accounts 2013 26 Kesselman & Kesselman, a member firm of PricewaterhouseCoopers International Limited, are retained to perform audit and audit-related work on the Group. The Audit Committee monitors the nature and extent of non-audit work undertaken by the auditors. It is satisfied that there are adequate controls in place to ensure auditor independence and objectivity. The matter is kept under review and is a standing item on the agenda for the Audit Committee. Periodically, the Audit Committee monitors the cost of non-audit work undertaken by the auditors. The Audit Committee considers that it is in a position to take action if at any time it believes that there is a risk of the auditors’ independence being undermined through the award of this work.
Plus500 Limited | Annual Report and Accounts 2013 27
Plus500 | FINANCIALS Plus500 Limited | Annual Report and Accounts 2013
30
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.
The Companies Law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted for use in the European Union. The Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company, the Group and the profit or loss of the Company and the Group for that period. In preparing these financial statements, the Directors are required to:
• Present fairly the financial position, financial performance and cash flows of the Group and the Company;
• Select suitable accounting policies in accordance with IAS 8- Accounting policies, changes in Accounting Estimates and Errors and then apply them consistently;
• Present information, including accounting policies, in a manner that provide relevant, reliable, consistent and understandable information;
• Make judgments and accounting estimates that are reasonable;
• State whether applicable IFRS have been followed, subject to any material departures disclosed and explained in the financial statements;
• Provide additional disclosures when compliance with the specific requirements in IFRS (as adopted in the EU) is insufficient to enable users to understand the impact of transactions, other events and conditions on the Group and Company’s financial position and financial performance; and
• Prepare the financial statements on the going concern basis unless it is inappropriate to presume the Group and the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and the Company and enable them to ensure that the financial statements comply with applicable law. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps in the prevention and detection of fraud and other irregularities.
The Directors are also responsible for preparing the Directors’ Report, and the Directors’ Remuneration Report.
Plus500 Limited | Annual Report and Accounts 2013
29
Plus500Plus500 | Limi2013ted | AnnuFINANCIALal Report and Accoun STATEMENTSts 2013
32
2013 FINANCIAL STATEMENTS
Table of contents
Page
Report of the auditors 32 Consolidated financial statements in U.S. Dollars ($):
Consolidated statements of financial position 33-34
Consolidated statements of comprehensive income 35
Consolidated statements of changes in equity 36
Consolidated statements of cash flows 37-38
Notes to the consolidated financial statements 39-76
Plus500 Limited | Annual Report and Accounts 2013 31
Report of the auditors
To the shareholders of Plus500 Ltd.
We have audited the accompanying consolidated statements of financial position of Plus500 Ltd. (hereafter - the Company) as of 31 December 2013 and 2012, and the related consolidated statement of comprehensive income, statements of changes in equity and statements of cash flows for each of the two years ended on December 31, 2013. These financial statements are the responsibility of the Company's board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Israel, including those prescribed by the Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Company's board of directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company, its subsidiaries as of 31 December 2013 and 2012, and the statement of comprehensive income, changes in equity and cash flows for each of the two years ended on December 31, 2013, in accordance with International Financial Reporting Standards (IFRS).
Haifa, Israel Kesselman & Kesselman March 10, 2014 Certified Public Accountants (lsr.) A member firm of PricewaterhouseCoopers International Limited
Kesselman & Kesselman, 1 Nathanson Street, Haifa 3303473, Israel, P.O Box 33984, Haifa 3133901 Telephone: +972 -4- 8605000, Fax:+972 -4- 8605001, www.pwc.com/il
Plus500 Limited | Annual Report and Accounts 2013 32 Plus500 Ltd. Consolidated statements of financial position
As of December 31 2013 2012 Note U.S. dollars in thousands
Assets
Current assets:
Cash and cash equivalents 10a 84,108 22,486 Short-term bank deposit 10a 1,177 1,126 Restricted deposit 8 215 203 Accounts receivable 10b 3,239 894 88,739 24,709
Non-current assets:
Property, plant and equipment 4 244 240 Intangible assets 5 47 41 Deferred income taxes 7 1,063 265 1,354 546 Total assets 90,093 25,255
Liabilities and Shareholders' Equity
Current liabilities:
Trade payables – due to clients 10c 5,532 6,092 Other accounts payable and accruals: 10d Service supplies 6,840 3,197 Other 1,134 822 Income tax payable 7 8,573 2,443 Liability for Share-based compensation 9 - 251 22,079 12,805
Non-current liabilities - Share-based compensation 9 - 503
Plus500 Limited | Annual Report and Accounts 2013 33 Equity:
Ordinary shares 317 6 Share premium 22,220 287 Retained earnings 45,477 11,654
Total equity 68,014 11,947 Total equity and liabilities 90,093 25,255
)
Gal Haber ) CEO
)
Inbal Marom ) Group Chief Financial Officer
)
Alastair Neil Gordon ) Non-Executive Director and Chairman
Date of approval of the financial statements by the board of directors: 10 March 2014
The accompanying notes are an integral part of the financial statements.
Plus500 Limited | Annual Report and Accounts 2013 34 Plus500 Ltd. Consolidated statements of comprehensive income
Year ended December 31
2013 2012
Note U.S. dollars in thousands
Trading income 115,088 56,127
Selling, general and
Administrative expenses: Selling and marketing 11a 44,322 28,930 Administrative and general 11b 3,563 4,124
Income from operations 67,203 23,073
Financial income 1,335 178 Financial expenses 1,373 178
Financing expenses – net 38 -
Income before taxes on income 67,165 23,073
Taxes on income 7 16,532 5,973
Profit and comprehensive income
For the period 50,633 17,100
In U.S. dollars
15 0.47 0.17 Earnings per share (basic and diluted)
The accompanying notes are an integral part of the financial statements.
Plus500 Limited | Annual Report and Accounts 2013 35 Plus500 Ltd. Consolidated statements of changes in equity
Ordinary Share Retained shares premium earnings Total
U.S. dollars in thousands
Balance at January 1, 2012 6 287 9,129 9,422 Profit and comprehensive income for the year 17,100 17,100
Transaction with shareholders - Dividend (14,575) (14,575)
Balance at December 31, 2012 6 287 11,654 11,947
Profit and comprehensive income for the year 50,633 50,633
Transaction with shareholders -
Dividend (16,810) (16,810) Shares issued (net) of issuance cost 40 22,204 22,244 Bonus shares issued 271 (271) Balance at December 31, 2013 317 22,220 45,477 68,014
The accompanying notes are an integral part of the financial statements.
Plus500 Limited | Annual Report and Accounts 2013 36 Plus500 Ltd. Consolidated statements of cash flows
Year ended December 31
2013 2012
U.S. dollars in thousands Cash flows from operating activities:
Cash generated from operations (see appendix a) 66,890 23,042 Income tax paid – net (9,894) (3,355) Interest received 101 174
Net cash provided by operating activities 57,097 19,861
Cash flows from investing activities:
Purchase of property, plant and equipment (75) (176) Proceeds from sale of property, plant and equipment - 8 Purchase of intangible assets (17) (10)
Net cash used in investing activities (92) (178)
Cash flows from financing activities: Dividend paid (16,810) (14,575) Proceeds from share issuance, net of $4,600 thousands 21,074 - issuances cost
Net cash provided by (used in) financing activities 4,264 (14,575)
Increase in cash and cash
Equivalents 61,269 5,108 Balance of cash and cash equivalents At beginning of year 22,486 17,293 Losses from eexchange differences on cash and Cash equivalents 353 85 Balance of cash and cash equivalents At end of the year 84,108 22,486
The accompanying notes are an integral part of the financial statements. Plus500 Limited | Annual Report and Accounts 2013 37 Plus500 Ltd. Consolidated statements of cash flows (continued)
Appendices consolidated statement of cash flows
Appendix a: Year ended December 31
2013 2012
U.S. dollars in thousands
Cash generated from operations - Net income for the period 50,633 17,100
Adjustments required to reflect the cash flows from operating activities: Depreciation and amortization 82 95 Loss on disposal of property, plant and equipment - 14 Taxes on income 16,532 5,973 Interest and foreign exchange (gains) on operating (590) (168) activities
Gains on revaluation of deposits (63) (28) 15,961 5,886
Operating changes in working capital: Increase (decrease) in accounts receivable (2,345) 1,125 Decrease in trade payables due to clients (560) (1,487) Increase (decrease) in other accounts payable: Service supplies 3,643 (159) Other 312 438 Liability for Share-based compensation (754) 139
296 56
Cash flows from operating activities 66,890 23,042
The accompanying notes are an integral part of the financial statements.
Plus500 Limited | Annual Report and Accounts 2013 38 Plus500 Ltd. Notes to consolidated financial statements
Note 1 - General Information
Plus500 Ltd. (hereafter – the Company) was established in 2008 as a private limited company with the name Investsoft Ltd. On 18 June 2012 the company changed its name to Plus500 Ltd. The Company has developed a trading platform for private clients, enabling trading on contracts for differences (hereafter - CFD) on shares, indexes, commodities and foreign exchange.
On 24 July 2013, the Company's shares were listed for trading on the London Stock Exchange in the Company's initial public offering ("IPO"). As part of the IPO, the Company issued 14,396,775 shares of NIS 0.01 par value in consideration for a gross amount of £ 16,556,291 (about $ 25,000 thousands). Subsequent to the IPO the number of shares is 114,888,377. The share issue costs amounted to $ 4,600 thousands.
In addition, as part of the IPO, Company shareholders sold 28,793,550 shares to the public in consideration for £ 33,112,583 (about $ 50,000 thousands).
In September 2009, the Company established a subsidiary in the UK (hereafter – the UK subsidiary) in order to be granted an FCA license. The Company and the UK Subsidiary (hereafter – the Group) are engaged in one operating segment - CFD trading - mainly in Europe.
In September 2011 the Company established a subsidiary in Australia (hereafter – AU Subsidiary) in order to obtain an Australian securities and investments commission (hereafter - ASIC) license, which was granted in October 2012. The AU Subsidiary is engaged in the same field of operations - CFD trading - in Australia and begun operating commencing January 2013.
The address of the Company's principal offices is Building 22, Matam, Haifa 31905, Israel.
Plus500 Limited | Annual Report and Accounts 2013 39 Plus500 Ltd. Notes to consolidated financial statements
Note 2 – Summary of Significant Accounting Policies:
a. Basis of Preparation: The Group's financial information as of December 31, 2013 and 2012 and for each of the two years for the period ended December 31, 2013, are in compliance with International Financial Reporting Standards that consist of standard and interpretations issued by the International Accounting Standard Board (hereafter – IFRS).
The significant accounting policies described below have been applied consistently in relation to all the reporting periods, unless otherwise stated.
The financial information have been prepared under the historical cost convention, subject to adjustments in respect of revaluation of financial assets at fair value through profit or loss presented at fair value.
b. Principles of consolidation: The Group has control over the UK Subsidiary and the AU Subsidiary. The Group is exposed to, or has rights to, variable returns from its involvement with the entities and has the ability to affect those returns through its power over the UK Subsidiary and the AU Subsidiary, that are fully consolidated from the date on which control is transferred to the Company.
1) The consolidated financial information includes the accounts of the Company and its wholly-owned subsidiaries.
2) Intercompany balances and transactions between the Group's entities have been eliminated.
3) Accounting policies of the UK Subsidiary and the AU Subsidiary have been changed where necessary to ensure consistency with the policies adopted by the Group.
Plus500 Limited | Annual Report and Accounts 2013 40 c. Segment reporting: Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments. As stated in note 1 above, the Group operates in one operating segment.
d. Foreign currency translation: 1) Functional and Presentation Currency Items included in the financial information of each of the Group’s entities are measured using the currency of the primary economic environment in which that entity operates (the “Functional Currency”). The consolidated financial statements are presented in U.S. dollars ("USD"), which is the company and its subsidiary's functional and presentation currency.
2) Transactions and balances Foreign currency transactions in currencies different from the functional currency (hereafter – foreign currency) are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Gains and losses arising from changes in exchange rates are presented in the statement of comprehensive income among "financial income (expenses)".
3) Information regarding exchange rates of one U.S. dollar, based on data published by the Bank of Israel:
Plus500 Limited | Annual Report and Accounts 2013 41 NIS Pound Sterling Euro
Exchange rate as of December 31:
2013 3.471 0.6045 0.7258 2012 3.733 0.6184 0.7586
% % % Increase (decrease) of the dollar: during the year: 2013 (7.0) (2.3) (4.3)
2012 (2.3) (4.6) (2.0)
NIS Pound Sterling Euro
Average exchange rate during the year:
2013 3.609 0.6388 0.7525 2012 3.719 0.6086 0.7509
% % %
Increase (decrease) during the year:
2013 (2.9) 4.9 0.2 2012 3.9 (2.5) 4.5
Plus500 Limited | Annual Report and Accounts 2013 42 e. Property, plant and equipment: The cost of a property, plant and equipment item is recognized as an assets only if: (a) it is probable that the future economic benefits associated with the item will flow to the Group and (b) the cost of the item can be measured reliably.
Property, plant and equipment are stated at historical cost less accumulated depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items and only when the two criteria mentioned above for recognition as assets are met. Depreciation is calculated using the straight-line method to allocate the cost of property plant and equipment less their residual values over their estimated useful lives, as follows:
Percentage of annual depreciation
Computers and office equipment 10-33
Leasehold improvements 20
Leasehold improvements are amortized by the straight-line method over the terms of the lease (five years) which is shorter than the asset's useful life.
The asset’s residual values, the depreciation method and useful lives are reviewed, and adjusted if appropriate, at least once a year.
An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (see Note 2g).
Plus500 Limited | Annual Report and Accounts 2013 43 f. Intangible Assets - computer software Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software licenses. These costs are amortized over their estimated useful lives (3-5 years) using the straight line method.
Costs associated with maintaining computer software programs are recognized as an expense as incurred. Costs that are directly associated with the development of software products controlled by the Group are recognized as intangible assets when all the criteria in IAS 38 are met.
g. Financial assets: 1) Classification The Group classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The classification depends on the purpose for which the financial assets were acquired. Group management determines the classification of its financial assets at initial recognition.
a) Financial instruments at fair value through profit or loss This category includes 2 sub-categories: financial assets and financial liabilities held for trading and financial assets as at fair value through profit or loss. Financial instrument is classified in this category if acquired principally for the purpose of selling in the short term, or if designated by management in this category. Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current. The Group's financial instruments at fair value through profit or loss comprise 'Financial derivative open positions' (offset from 'Deposits from clients' within 'Trade payables due from clients', (see note 2k) in the statements of 'Financial position'.
Plus500 Limited | Annual Report and Accounts 2013 44 b) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the statement of financial position date. These are classified as non-current assets.
The Group's loans and receivables comprise 'Cash and cash equivalents', 'Short- term bank deposit', 'Restricted deposit', 'Accounts receivable' and 'Long-term deposit' in the statements of financial position.
2) Recognition and measurement Investments are initially recognized at fair value plus transaction costs for all financial assets not measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss, are initially recognized at fair value, and transaction costs are expensed in profit or loss. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Financial assets at fair value through profit or loss are subsequently carried at fair value. Receivables are measured in subsequent periods at amortized cost using the effective interest method.
Gains or losses arising from changes in the fair value of the 'financial instruments at fair value through profit or loss' category are presented in the statements of comprehensive income within 'Trading income in the period in which they arise.
A financial instrument is derecognized when the contract that gives rise to it is settled, sold, cancelled or expires.
3) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously.
4) Impairment of financial assets Financial assets are carried at amortized cost. The Group assesses at each statement of financial position date whether there is objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the
Plus500 Limited | Annual Report and Accounts 2013 45 estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.
Where objective evidence for impairment exists, the amount of the loss is measured as the difference between the asset’s carrying amount of the financial assets and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed for the asset upon initial recognition). The asset’s carrying amount is reduced and the amount of the loss is recognized in profit or loss.
h. Cash and cash equivalents Cash and cash equivalents include cash in hand, short-term bank deposits and other highly liquid short-term investments, the original maturity of which does not exceed three months.
The subsidiary holds money on behalf of clients in accordance with the client money rules of the UK Financial Conduct Authority (FCA). Such monies are classified as ‘segregated client funds’ in accordance with the FCA regulatory requirements. Segregated client funds comprise retail client funds held in segregated client money accounts.
Segregated client money accounts hold statutory trust status restricting the Group’s ability to control the monies and accordingly such amounts are not held on the Group’s Statement of Financial Position. The segregated funds are not reflected as company's assets. The amount of segregated client funds held at year-end is disclosed in note 10a to the financial statement.
Israeli law does not require holding client money in segregated client money accounts.
Plus500 Limited | Annual Report and Accounts 2013 46 i. Share Capital Ordinary shares of the Company are classified as equity. All share and per share amounts included in the consolidated financial statements have been adjusted retroactively to reflect the effects of the issuance of bonus share (see note 15).
j. Accounts payable Other accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Other accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Other accounts payable are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.
k. Trade payables – due to clients As part of its business, the Group receives from its customers, deposits to secure their trading positions.
Assets or liabilities resulting from profit or losses on open positions are carried at fair value. Amounts due from or to clients are netted against the deposit with the same counterparty where a legally-enforceable netting agreement is in place and where it is anticipated that assets and liabilities will be netted on settlement. Trade payables due to clients represent balances with counterparties and clients where the combination of cash held on account (customer deposits) and the valuation of financial derivative open positions result in an amount payable by the Group.
Trade payables due to clients are classified as current liabilities as the demand is due within one year or less.
l. Share-based compensation The Group operated a share-based compensation plan until July 2013, under which the Group received services from employees as consideration for subsidiary shares. The fair value of the employee services received in exchange for the grant of the shares was recognized as an expense in profit or loss. The total amount to be expensed was determined by reference to the fair value of the shares granted.
For cash-settled share-based payment transactions, the Group measured the services acquired and the liability incurred at the fair value of the liability. Until the liability has settled, the Group re-measures the fair value of the liability at the
Plus500 Limited | Annual Report and Accounts 2013 47 end of each reporting period and at the date of settlement, with any changes in fair value recognized in profit or loss for the period.
For share-based payment transactions in which the terms of the arrangement provide either the Group or the counterparty with the choice of whether the Group settles the transaction in cash or by the subsidiary's shares, the Group accounts for that transaction, or the components of that transaction, as a cash-settled share- based payment transaction if, and to the extent that, the Group has incurred a present obligation to settle in cash or as an equity-settled share-based payment transaction if, and to the extent that, no such liability has been incurred.
m. Employee benefits
Pension Obligations
Group companies operate various pension schemes. The schemes are generally funded through payments to insurance companies or trustee-administered pension funds.
The Group has defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.
The Group pays contributions to publicly or privately administered pension insurance plans on a mandatory basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense commensurate with receipt from employees of the service in respect of which they are entitled for the contributions.
n. Revenue recognition Revenue is recognized when it is probable that economic benefits associated with the transaction will flow to the Group and the revenue can be reliably measured.
Trading income represents gains and losses (including commission) arising on client trading activity, primarily in contracts for difference on shares, indexes, commodities and foreign exchange. Open client positions are carried at fair market value and gains and losses arising on this valuation are recognized in revenue as well as gains and losses realized on positions that have closed.
Plus500 Limited | Annual Report and Accounts 2013 48 Trading income is reported gross of commissions to agents as the Group is acting as a principal and is exposed to the significant risks and rewards associated with its trading transactions with its customers. The said commissions are disclosed as an expense within 'selling and marketing' expenses.
o. Dividends Dividend distribution is recognized as a liability in the Group's statement of financial position on the date on which the dividends are approved by the Group’s Board of Directors.
p. Current income tax Tax is recognized in profit or loss, except to the extent that it relates to items recognized directly in equity. In this case, the tax is also recognized directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted at the statement of financial position date in countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
q. Deferred income tax Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit and loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. The Group recognizes deferred taxes on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.
Plus500 Limited | Annual Report and Accounts 2013 49 Deferred income Tax is recognized in profit or loss, except to the extent that it relates to items recognized directly in equity. In this case, the deferred income tax is also recognized directly in equity, respectively.
Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
r. Leases Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating lease. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease.
s. New International Financial Reporting Standards, Amendments to Standards and New interpretations
1. New and amended standards adopted by the Group for reporting periods starting January 1, 2013:
a) IFRS 13 – "Fair Value Measurement"
IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity of fair value measurement by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs.
The first time application did not have a material effect on the Group's financial statements. b) Amendment to IFRS 7 – "Disclosures – Offsetting of Financial Assets and Financial Liabilities" (hereafter – Amendment to IFRS 7)
The Amendment to IFRS 7 adds disclosure requirements that focus on quantitative information about recognized financial instruments that are offset in the statement of financial position, as well as those recognized financial instruments that are subject to certain offsetting arrangements (irrespective of whether they are offset in the statement of the financial position).
Plus500 Limited | Annual Report and Accounts 2013 50 2. New and amended standards not yet adopted by the Group for reporting periods starting January 1, 2013: a) IFRS 9 – "Financial Instruments" (hereafter – IFRS 9).
IFRS 9, ‘Financial instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured as at fair value and those measured at amortized cost. The determination is made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Group is yet to assess IFRS 9’s full impact. The Group will also consider the impact of the remaining phases of IFRS 9 when completed by the Board.
Plus500 Limited | Annual Report and Accounts 2013 51 Plus500 Ltd. Notes to consolidated financial statements
Note 3 - Financial Risk Management The Group specializes in the field of Contracts for Difference (‘‘CFD’’) for retail clients only, primarily on Commodities, Indexes, Stocks, ETFs and Foreign Exchange. The Group activities expose it to a variety of financial risks: market risk (including currency risk and price risk), credit risk and liquidity risk. The Group overall risk management programme focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group financial performance.
a. Market risk The management of the Group deems this risk as the highest risk the Group incurs. Market risk is the risk that changes in market prices will affect the Group income or the value of its holdings of financial instruments. This risk can be divided into market price risk and foreign currency risk, as described below.
The Group market risk is managed on a Group-wide basis and exposure to market risk at any point in time depends primarily on short term market conditions and the levels of client activity. The Group utilizes market position limits for operational efficiency and does not take proprietary positions based on an expectation of market movements. As a result, not all net client exposures are hedged and the Group may have a substantial net position in any of the financial market in which it offers products.
The Group's market risk policy incorporates a methodology for setting market position limits, consistent with the Group risk appetite, for each financial instrument in which the Group clients can trade, as well as certain markets which the CEO considers to be correlated. These limits are determined based on the Group clients’ trading levels, volatilities and the market liquidity of the underlying financial product or asset class and represent the maximum long and short client exposure that the Group will hold without hedging the net client exposure.
Plus500 Limited | Annual Report and Accounts 2013 52 The Group's real-time market position monitoring system is intended to allows it to continually monitor its market exposure against these limits. If exposures exceed these limits, the Group either hedges, or new client positions are rejected under the Group's policy.
It is the approach of the Group to observe during the year the 'natural' hedge arising from the Group's global client in order to reduce the Group's net market exposure.
Under the Group's policy, if it is not cost effective to hedge market positions, the Group will review the appropriate action.
The Group's exposure to market risk at any point in time depends primarily on short-term market conditions and client activities during the trading day. The exposure at each statement of financial position date may therefore not be representative of the market risk exposure faced by the Group over the year. The Group's exposure to market risk is determined by the exposure limits described above which change from time to time.
1. Market price risk: This is the risk that the fair value of a financial instrument fluctuates as a result of changes in market prices other than due to the effect of transactional foreign currency exposures or interest rate risks. The Group has market price risk as a result of its trading activities CFDs on foreign exchange, stocks, indices, commodities and ETFs),part of which is naturally hedged as part of the overall market risk management. The exposure is monitored on a Group-wide basis.
Exposure limits are set by the risk manager for each product, and also for Groups of products where it is considered that their price movements are likely to be positively correlated.
Plus500 Limited | Annual Report and Accounts 2013 53 Daily profit on closed positions : 2013 2012
U.S. dollars in thousands
Highest profit 3,691 1,035 Highest loss (289) (173) Average 318 150
During the years 2013 and 2012, as to the closed positions, there were 297 and 278 profitable trading days respectively. The Company is in the opinion that in view of the number of transactions and its policy relative to cap it applies to each transaction and the total amount of transaction, then it is able to reduce its market risk exposure.
2. Foreign currency risk: Transactional foreign currency exposures represent financial assets or liabilities denominated in currencies other than the functional currency of the transacting entity. Transaction exposures arise in the normal course of business.
Foreign currency risk is managed on a Group-wide basis, while the Group exposure to foreign currency risk is not considered by the board to be significant. The Group monitors transactional foreign currency risks including currency statement of financial position exposures, equity, commodity, interest and other positions denominated in foreign currencies and trades on foreign currencies.
At 31 December 2013, if the U.S. dollar had strengthened by 1% against Pound sterling with all other variables unchanged the exposure in respect of balances denominated in Pound sterling on income after taxes is $ 401 thousand (2012: $ 89 thousand); if the U.S. dollar had strengthened by 1% against Euro with all other variables unchanged the exposure in respect of balance denominated in Euro on income after taxes is $ 179 (2012: $ 61 thousand).
Plus500 Limited | Annual Report and Accounts 2013 54 b. Credit risk The Group operates a real-time mark-to-market trading platform with clients' profits and losses being credited and debited automatically to their accounts.
Under the Group's policy the clients cannot owe the Group funds when losing more than they have in their accounts.
Client credit risk principally arises when a client’s total funds deposited (margin and free equity) are insufficient to cover any trading losses incurred. In particular, client credit risk can arise where there are significant, sudden movements in the market i.e. due to high general market volatility or specific volatility relating to an individual financial instrument the client has an open position in.
The Group's products are margin-traded. If the market moves adversely by more than the client’s maintenance margin, the Group is exposed to client credit risk.
The Company set principles in order to monitor and manage the credit risk on a real time basis. Under the Group's policy, if client funds are below the required margin level, client positions will be liquidated (margin call).
The carrying amount of the Group's financial assets best represents their maximum exposure to credit risk.
The Group has no material financial assets that are past due or impaired as the reporting dates.
For the years 2013 and 2012 Counterparties holding about 91% and 89% (respectively) of Company cash and cash equivalents, credit cards and deposits are Barclays, Bank Leumi, First International Bank of Israel and Credit Suisse. The credit ratings as of December 31, 2013 are as follows:
Financial institution Rating*
Barclays A Credit Suisse A Bank Leumi BBB First International Bank Of Israel BB
* The Financial institution were rated by the same third party
Plus500 Limited | Annual Report and Accounts 2013 55 As for the remaining counterparties which for the years 2013 and 2012 holds about 9%, and 11% (respectively) of Company cash and cash equivalents, they are located worldwide and are considered to be leading institution in each country.
The Group’s largest credit exposure to any single bank as of December 31, 2013 was $42,389 thousands or 48% of the exposure to all banks (2012: $13,898 thousands).
c. Concentration risk Concentration risk is defined as all risk exposures with a loss potential which is large enough to threaten the solvency or the financial position of the Group. In respect of financial risk, such exposures may be caused by credit risk, market risk, liquidity risk or a combination or interaction of those risks.
Trading income from external customers in 2013 in the United Kingdom was 15% (2012: 10%) As of December 31, 2013 derivative open positions in United Kingdom amount to 13.97% (2012: 8.3%) of the total derivative open positions.
d. Liquidity risk Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations arising from its financial liabilities that are settled by delivering cash or other financial assets.
Liquidity risk is managed centrally and on a Group-wide basis. The Group's approach to managing liquidity is to ensure it will have sufficient liquidity to meet its financial liabilities when due, under both normal circumstances and stressed conditions.
The Group approach is to insure that there will be no material liquidity mismatches with regard to liquidity maturity profiles due to the very short-term nature of its financial assets and liabilities. Liquidity risk can, however, arise as a result of the Group adopting what it considers to be best industry practice in placing some retail client funds in segregated client money accounts. A result of this policy is that short- term liquidity ‘gaps’ can potentially arise in periods of very high client activity or significant increases in global financial market levels. The contractual maturity of the financial liabilities is up to two months.
Plus500 Limited | Annual Report and Accounts 2013 56 e. Capital Management The Company manages as capital only its shareholders' equity.
The UK Subsidiary is regulated by the UK’s Financial Conduct Authority (“FCA”). The UK Subsidiary manages its capital resources on the basis of regulatory capital requirements (hereafter - Pillar 1) and its own assessment of capital required to support all material risks throughout the business (hereafter - Pillar 2). The UK Subsidiary manages its regulatory capital through an Internal Capital Adequacy Assessment Process (known as the ICAAP) in accordance with guidelines and rules implemented by the FCA. Both Pillar 1 and the Pillar 2 assessment are compared with total available regulatory capital on a daily basis and monitored by the management of the company. As of December 31, 2013 and 2012, the UK regulated entity had £ 7,952 thousands and £ 2,410 thousands, respectively, of regulatory capital resources, which is in excess of both its regulatory capital requirement (Pillar 1) and the internally measured capital requirement (Pillar 2).
f. Fair value estimation Financial derivative open positions (offset from deposits from clients within "Trade payable due from clients") (see also note 10c) are measured at fair value through profit or loss using valuation techniques. The said valuation techniques are based on inputs other than quoted prices in active market that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2).
These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. Since all significant inputs required for the fair value estimations of the said instruments are observable, the said instruments are included in level 2.
Specific valuation techniques used to value financial instruments are based on using quoted market prices or dealer quotes for similar instruments, with regard to the difference between dealer quotes and the quoted marker price.
g. Financial derivative open Positions The company's contracts with its customers are financial instruments. For disclosure about offsetting financial assets and liabilities from open positions (see note 10c).
Plus500 Limited | Annual Report and Accounts 2013 57
Plus500 Ltd. Notes to consolidated financial statements
Note 4 - Property, Plant and Equipment:
Plus500
L
imi a. Composition of assets, Grouped by major classifications and changes therein in 2013 is as follows:
ted Cost Accumulated depreciation Depreciated balance
|
Annual Balance at Additions Balance Balance at Additions Balance
Repo beginning during at end beginning during at end As of December 31
58
rt of year the year of the year of year the year of the year 2013
and
A
cco U.S. dollars in thousands U.S. dollars in thousands
unts Computers and office
2013 equipment 280 65 345 110 56 166 179
Leasehold improvements 116 10 126 46 15 61 65
396 75 471 156 71 227 244
b. Composition of assets, Grouped by major classifications and changes therein in 2012 is as follows:
Cost Accumulated depreciation Depreciated balance
Balance at Additions Disposals Balance Balance Additions Disposals Balance
Plus500 at
L
imi beginning during during the at end beginning during during the at end As of December 31 2012
ted of year the year year of the year of year the year year of the year
|
Annual U.S. dollars in thousands U.S. dollars in thousands U.S. dollars in thousands
Repo Computers and office
59
rt equipment 195 110 25 280 64 49 3 110 170
and Leasehold 50 66 - 116 8 38 - 46 70
A improvements
cco
unts 245 176 25 396 72 87 3 156 240
2013
Plus500 Ltd. Notes to consolidated financial statements
Note 5 - Intangible Assets:
Accumulated Accumulated
Plus500 Cost amortization Cost amortization
L As of December 31, 2013 As of December 31, 2012
imi
ted U.S. $ in thousands U.S. $ in thousands
| Software 76 29 59 18
Annual
The amortization of intangible assets was charged to administrative and general expenses.
60
Repo
rt
and
A
cco
unts
2013
Plus500 Ltd. Notes to consolidated financial statements
Note 6 - Share Capital Composed of ordinary shares of NIS 0.01 par value, as follows:
Number of shares 31 December 2013 2012
Authorized 300,000,000 300,000,000
Issued and fully paid* 114,888,377 100,491,602
* On 24 July 2013, the Company's shares were listed for trading on the London Stock Exchange in the Company's initial public offering ("IPO"). As part of the IPO, the Company issued 14,396,775 shares of NIS 0.01 par value in consideration for a gross amount of £ 16,556,291 (about $ 25,000 thousands). Subsequent to the IPO the number of shares is 114,888,377.
Set forth below are the amounts of dividends and the amounts of dividends per share for the years 2012 and 2013 resolved to distribute by the Company's Board of Directors: Amount of dividend in Amount of thousands dividend in Date of declaration thousands of $ of NIS
April 17, 2012 6,660 25,000 August 16, 2012 7,915 32,000 March 18, 2013 4,874 18,000 June 19, 2013 3,894 14,000 August 22, 2013 8,042 28,445
The dividend paid in 2013 and 2012 amounted to $16,810 thousands ($0.16 per share), $14,575 thousands ($0.14 per share), respectively (Computed based on the weighted average number of ordinary shares in issue –see note 15).
Plus500 Limited | Annual Report and Accounts 2013 61 Plus500 Ltd. Notes to consolidated financial statements
Note 7 - Taxes on Income:
a. Corporate taxation in Israel On December 6, 2011, the "Tax Burden Distribution Law" Legislation Amendments (2011) was published in the official gazette. Under this law, Corporate tax rate is 25% as from 2012.
On August 5, 2013, the Law for Change of National Priorities (Legislative Amendments for Achieving the Budgetary Goals for 2013-2014), 2013 (hereinafter - the Law) was published in Reshumot (the Israeli government official gazette), enacting, raising the corporate tax rate beginning in 2014 and thereafter to 26.5% (instead of 25%).
The application of this law did not have a material effect on the Group income tax expenses.
b. Corporate taxation in UK The subsidiary Plus500UK Ltd. is assessed for tax under the tax laws in UK. The principal tax rates applicable to the subsidiary incorporated in the UK is 23% (January –March 2013 – tax rate of 24%, April 2013 through December 2013 tax rate of 23%)
c. Deferred tax asset The company recognized in its accounts a deferred tax asset for issuance expenses it incurred as a result of its IPO, which was credited to equity.
The Deferred tax asset in total amount of $1,063 thousands is presented among "non-current assets", and computed at tax rate of 26.5%.
Plus500 Limited | Annual Report and Accounts 2013 62 d. Taxes on income included in the income statements for the reported periods:
Year ended December 31
2013 2012
U.S. dollars in thousands Current taxes -
current taxes in respect of current year's profits 16,101 6,238
Deferred taxes - Reversal of deferred taxes asset (see c above) 431 (265) Taxes on income expenses 16,532 5,973 e. Reconciliation of the theoretical tax expense Following is a reconciliation of the theoretical tax expense, assuming all income is taxed at the regular tax rates applicable to companies in Israel (Note 7a above) and the actual tax expense:
Year ended December 31
2013 2012
U.S. dollars in thousands
Income before taxes on income, as reported in 67,165 23,073 the income statements Theoretical tax expense in respect of this year's
income - at 25% 16,791 5,768 Increase (decrease) in taxes resulting from different tax rates applicable to foreign (223) (56) subsidiary Increase in taxes arising from permanent 36 261 differences
Taxes on income for the reported period 16,532 5,973
Plus500 Limited | Annual Report and Accounts 2013 63 f. Effect of adoption of IFRS in Israel on tax liability As mentioned in note 2a, the Group prepares its financial statements in accordance with IFRS. IFRS differ from accounting principles generally accepted in Israel and accordingly, the preparation of financial statements in accordance with IFRS may reflect a financial position, results of operations and cash flows that are materially different from those presented in financial statements presented in accordance with accounting principles generally accepted in Israel. In accordance with the law for the amendment of the Income Tax Ordinance (No. 174 – Temporary Order as to Tax Years 2007, 2008 and 2009), which was published in the official gazette on February 4, 2010 and the Law for the Amendment of the Income Tax Ordinance (No. 188), 2012, which was published in the official gazette on January 12, 2012 (hereinafter together – the temporary provision), the provisions of Israel Accounting Standard No. 29 of the Israel Accounting Standards Board do not apply in determining taxable income for tax years 2007 to 2011, even if applicable in financial statements for those tax years. The meaning of the temporary provision is that IFRS do not apply in practice when calculating the reported income for tax purposes in the specified tax years.
On October 31, 2011 the Government of Israel published a law memorandum in connection with the amendment to the Income Tax Ordinance (hereafter – the law memorandum) resulting from application of IFRS in the financial statements. Generally, the law memorandum adopts IFRS. However, its suggests several amendments to the Income Tax Ordinance that will serve to clarify and determine the manner of computing taxable income for tax purposes in cases where the manner of computation is unclear and IFRS is incompatible with the principles of the tax method applied in Israel. At the same time, the law memorandum generally adopts IFRS. The legislation process involving the law memorandum has not been completed, and is not likely to be completed in the near future.
As the legislation process relating to the law memorandum has not been completed, management believes that the temporary provision for 2007 and 2011 may be extended to cover 2012 and 2013 as well. Due to the application of temporary provision on the 2007-2011 tax years, as above, and the possibility for extension to 2012 and 2013, management expects at this stage that the new legislation will not apply to tax years preceding 2014.
On January 1, 2013, the Israel Tax Authority announced that the temporary provisions on the non-applicability of IFRS for the purpose of determining taxable income is extended also to the 2012 tax year (hereinafter - the ITA announcement). The ITA announcement states that the ITA intends to promote a legislation to extend the temporary provision by one additional year (2012), immediately when a new Knesset is elected. However, in practice the temporary provision was not extended by legislation.
Plus500 Limited | Annual Report and Accounts 2013 64 Considering that the temporary provision applies to the 2007-2011 tax years and company assessment on the likelihood for extension to cover 2012 and 2013, as above, the Company computed its taxable income for 2009-2013 based on the Israeli accounting standards that existed prior to adopting IFRS in Israel.
g. Final tax assessments have been received by the company through the year ended December 31, 2011. The subsidiary Plus500UK Ltd. has not been assessed for tax purposes since its incorporation.
Plus500 Limited | Annual Report and Accounts 2013 65 Plus500 Ltd. Notes to consolidated financial statements
Note 8 – Restricted Deposit
A bank deposit amounting to € 100 thousands ($ 138 thousands) serving as a security for a guarantee that was provided by the bank in favor of a third party and was renewed on June 14, 2013. The guarantee validity is recorded as July 1, 2014. On August 11, 2011 the Company signed an addition to a lease contract with a third party (signed on September 1, 2009), for the lease of 650 square meter offices in Haifa, Israel. According to the contract, the lease is for 60 months and the Company has an option to shorten the lease period to 36 months with a payment of NIS 200 thousands plus VAT. The rental payments are linked to the Israeli CPI. The long term deposit serves as a security for a bank guarantee provided in favor of the said third party in the amount of US $ 77 thousands (NIS 267 thousands) until August 2014, (see note 14).
Plus500 Limited | Annual Report and Accounts 2013 66 Plus500 Ltd. Notes to consolidated financial statements
Note 9 – Share-Based Compensation
Prior to the IPO there was an option plan in place for the CEO of the UK Subsidiary
On December 24, 2009, the company entered into an agreement with the former CEO of the UK Subsidiary (hereinafter - the CEO) giving him 2.5% of the shares of the subsidiary for his continued service in the company (until July 2013). The shares granted to the CEO were entitled to dividends and any other benefit given to other shares of the UK Subsidiary. The shares were subject to a clause allowing the Company to buy back these shares for a nominal amount (right of repurchase). This right expired in 4 installments which were determined based on 4 years of service of the CEO at the UK Subsidiary from the date of obtaining a trading license from UK regulators. The agreement stated that the Company has a first right of refusal in case the CEO decided to sell shares that were released from the right of repurchase to a third party.
In addition to the right of repurchase the agreement granted the Company a call option to purchase at any time the entire shares granted to the CEO for a total of NIS 3,000 thousands ($ 804 thousands). Furthermore, the CEO was granted a put option whereby until the end of three years from the date in which all of the rights of repurchase expire (commencing June 2013), he may sell to the Company half of the shares for NIS 1,000 thousands ($ 268 thousands).
The Group implemented IFRS 2 "Share-Based Payments" (see note 2) to this transaction. Due to the said put and call options in combination with the said right of first refusal, the said share-based transaction was treated as a share-based payment transaction in which the terms of the arrangement provide either the Group or the counterparty with the choice of whether the Group settles the transaction in cash or by the subsidiary's shares.
Accordingly, and due to the stated policy of the Group to eventually exercise its option to settle the said transaction in cash, the Group accounts for the said transaction as a cash-settled share-based payment transaction. As of December 31, 2012 the Group recognized a liability at fair value of $754 thousand The discount rate used for measuring the liability is 5%.
Plus500 Limited | Annual Report and Accounts 2013 67 The liability reflected the Company's best estimate of future cash payments based on the call option formula, meaning, the expected redemption amount discounted at 5%.
On February 17 2013, the Company's sole director resolved to exercise in full the Company's call option over the shares held by the CEO for NIS 3,000 thousands, subject to Admission. The February 17 2013 resolution provided that a formal call option notice would be sent to the CEO within 60 days of Admission.
The Company paid to the CEO of Plus500 UK the amount of the liability during 2013 of $805 thousands. As of December 31, 2013, no liability for share-based payment exists.
In the year 2013 and 2012 the Company recognized expenses of $51 thousand and $139 thousands respectively within general and administrative expenses with respect of the said transaction.
The CEO of the UK subsidiary left the company on October 2013.
Plus500 Limited | Annual Report and Accounts 2013 68 Plus500 Ltd. Notes to consolidated financial statements
Note 10 - Supplementary Balance Sheet Information:
a. Cash, cash equivalents and short term bank deposit:
1. Cash and cash equivalents
Year ended December 31 2013 2012 U.S. dollars in thousands
NIS 1,327 581 Dollar 2,348 811 Euro 46,536 2,817 GBP 59,875 35,905 Other 6,839 2,177
Gross cash and cash equivalents 116,925 42,291 Less: Segregated client funds (32,817) (19,805)
Own cash and cash equivalents 84,108 22,486
2. The Company has a short term bank deposit in Euro, yielding interest at 0.3% per year.
Plus500 Limited | Annual Report and Accounts 2013 69 b. Accounts receivable
Year ended December 31 2013 2012 U.S. dollars in thousands
Prepaid expenses 99 47 Credit cards 2,961 812 Other 179 35
3,239 894
All the financial assets included among current assets are for relatively short- periods; therefore, their fair values approximate or are identical to their carrying amounts.
c. Trade payables – due to clients: Year ended December 31 2013 2012 U.S. dollars in thousands
Amounts due to clients 13,980 13,470 Less- financial derivative open Positions: Gross amount of assets (12,107) (8,478) Gross amount of liabilities 3,659 1,100
5,532 6,092
Other amounts due to clients that will be transferred from the Group's own cash to segregated client funds on the immediately following working day in accordance with the United Kingdom Financial Conduct Authority (FCA) rules are $ 380 thousands as of December 31, 2013.
Plus500 Limited | Annual Report and Accounts 2013 70 d. Other accounts payable and accruals: 1) Service suppliers:
Year ended December 31 2013 2012 U.S. dollars in thousands
Open accounts 6,826 3,142 Cheques and notes payable 14 55
6,840 3,197
2) Other:
Payroll and related expenses 373 166 Accrued expenses 749 656 Other 12 -
1,134 822
The financial liabilities included among accounts payable, accruals and deposits from clients are for relatively short periods; therefore, their fair value is not materially different than their carrying amounts.
Plus500 Limited | Annual Report and Accounts 2013 71 Plus500 Ltd. Notes to consolidated financial statements
Note 11 - Supplementary Income Statement Information:
Year ended December 31
2013 2012
U.S. dollars in thousands a. Selling and marketing expenses:
Payroll and related expenses 2,303 1,316 Consultation fees to shareholders (see note 12) 775 778 Commission to agents 3,401 2,040 Advertising 32,508 21,230 Commissions to processing companies 3,865 2,406 Sundry 1,470 1,160
44,322 28,930
b. General and administrative expenses:
Payroll and related expenses 1,014 585 Professional fees and regulatory fees 1,189 1,428 Consultation fees to shareholders (see note 12) 166 156 Share-based compensation 52 139 Directors Fees and other expenses 178 - Issuance expenses (see note 7c) - 1,060 Sundry 964 756
3,563 4,124
Plus500 Limited | Annual Report and Accounts 2013 72 Plus500 Ltd. Notes to consolidated financial statements
Note 12 - Related Parties
"A related party" - As this term is being defined in IAS 24 - "Related Party Disclosure" (hereafter – IAS 24R).
The key management personnel of the company are directors and five founder shareholders. These Shareholders provide services to the Company directly or through companies they control.
As of December 31, 2013 and 2012, the balance of company's liability in respect of these services amounts is $72 thousands and $79.5 thousands respectively; the said liability is recorded among "other payables".
Transactions with related parties:
Year ended December 31
2013 2012
U.S. dollars in thousands Selling and marketing expenses:
Professional fees 775 778
General and administrative expenses:
Professional fees 166 156 Directors fees 134 -
Note 13 – Enterprise Wide Disclosures
The Company is domiciled in Israel. Trading income from external Israeli customers is not material. Trading income from external customers in 2013 in the United Kingdom is 15% (2012: 10%) of the company's revenues. Trading income was attributed to geographical areas according to the location of the customer.
Plus500 Limited | Annual Report and Accounts 2013 73 Plus500 Ltd. Notes to consolidated financial statements
Note 14 - Commitments
In August 2011 the Company has entered into an amendment to the lease agreements for its headquarters facility in Haifa that was signed in September 2009, (see note 8). The expected rental payments for the next years are as follows:
U.S. dollars in thousands
2014 130 2015 130 2016 130
Total 390
Plus500 Limited | Annual Report and Accounts 2013 74 Plus500 Ltd. Notes to consolidated financial statements
NOTE 15 - EARNINGS PER SHARE (basic and diluted)
Earnings per share is calculated by dividing the profit attributable to equity holders of the company by the weighted average number of ordinary shares in issue during the year.
Year ended December 31 2013 2012
Profit attributable to equity holders of the Company (In U.S dollars) 50,633,000 17,100,000
Weighted average number of ordinary shares in issue 106,730,204 100,491,602
On 23 June 2013, the Company allotted 98,154,588 bonus shares of NIS 0.01 par value to its shareholders. According to the guidance of IAS 33, the Company retrospectively revised the average number of shares to 100,491,602 for the annual period ended 31 December 2012.
On 24 July 2013, the Company's shares were listed for trading on the London Stock Exchange in the Company's initial public offering ("IPO"). As part of the IPO, the Company issued 14,396,775 shares of NIS 0.01 par value in consideration for a gross amount of £16,556 thousands (about $25,000 thousands). Subsequent to the IPO the number of shares is 114,888,377.
Plus500 Limited | Annual Report and Accounts 2013 75 Plus500 Ltd. Notes to consolidated financial statements
NOTE 16 - SUBSEQUENT EVENTS
On 18 February 2014, the Company’s Board of Directors declared the distribution of a dividend of $0.2873 per share, in the total amount of $33,000 thousands.
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Advisers
Nominated Adviser and Broker Liberum Capital Limited Ropemaker Place 25 Ropemaker Street London EC2Y 9LY
Independent Auditors PricewaterhouseCoopers – Israel (Kesselman & Kesselman) Trade Tower, 25 Hamered Street Tel Aviv 6812508 Israel
Financial PR Buchanan Communications Limited 107 Cheapside London EC2V 6DN
Legal Advisers (Israel) Naschitz, Brandes & Co., Advocates 5 Tuval Street Tel Aviv 6789717 Israel
Legal Advisers (United Kingdom) DLA Piper UK LLP 3 Noble Street London EC2V 7EE
Plus500 Limited | Annual Report and Accounts 2013 79 Depositary Capita IRG Trustees Limited The Registry
34 Beckenham Road Beckenham Kent BR3 4TU
Registrar Capita Registrars (Guernsey) Limited Mont Crevelt House Bulwer Avenue St Sampson Guernsey GY2 4LH
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Perivan Financial Print 231651